SOCGEN: Investors Are Worried About A Potential 'Sinister' Development In The Economy

Michala Marcusen, economist at SocGen, passes along the number
one thing that clients are worried about right now.

IS THE U.S. SOFT PATCH SOMETHING MORE SINISTER?

Marcusen answers:

Fears that recent weakness in the US data is signaling something
more sinister than a soft patch linked to fiscal tightening were
eased by Friday’s encouraging employment report; not only did
April see a gain of 165K, but its came with net revision worth
+114K over the previous two month. Steeper-than-expected cuts in
defence spending also suggest that the sequester may be more
front-loaded than we had initially discounted. A further positive
looking ahead is the recent drop in gasoline prices, which may
help offset some of the headwinds from fiscal restraint.

The last point about the drop in gasoline prices is a story
that's not gotten enough attention.

The year-over-year drop in gas prices is one of the most severe
since the crisis.

FRED

There's a lot of talk about the Fed off-setting the fiscal drag.
But falling gas prices (along with rising wages) is also a big
story.